Ally Financial Inc (ALLY) 2009 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the third quarter 2009 GMAC Inc. earnings conference call. My name is Lacey, and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Michael Brown, Executive Director of Investor Relations. Please proceed, sir.

Thank you, Lacey, and thank you everyone for joining us as we review GMAC Inc.'s third quarter 2009 results. You can find the materials we will reference during the call, as well as our press release, on the Investor Relations section of our Web site, GMACFS.com. We'd like to direct your attention to the legend on the second page of the presentation regarding forward-looking statements and risk factors. The contents of our conference call will be governed by this language. I should mention that to comply with SEC's Regulation G, we have provided some supplemental slides at the end of the deck which provide reconciling data between managerial financial results as discussed today and the GAAP results that are in GMAC's financial statements.

This morning, Robert Hull, our Chief Financial Officer will cover the Q3 2009 earnings review. After the presentation portion of the call, around 30 minutes will be set aside for questions from investors, analysts, and the financial press. When we reach that portion of the call, the operator will instruct you how to queue to ask a question. To help in answering your questions, we also have with us today Jeff Brown, GMAC corporate treasurer and David DeBrunner, GMAC Controller. Now I'd like to turn the call over to Rob Hull.

Thanks, Michael, and good morning. As announced earlier today, we reported a net loss for the quarter of $767 million and a loss from continuing operations of $671 million. A few quick points for you on GMAC's performance for the quarter. First, we are not pleased to report a loss even if the underlying message is positive which it is. Second, as with Q2, the result is not unexpected and is within the parameters contemplated in the Federal Reserve stress test process. Third and last, we continue to clean up the balance sheet and sharpen focus on core businesses. Slide Three lists some of our efforts to narrow that focus. We believe programs like Ally Deal Rewards, which launched this quarter will allow us to capitalize on GMAC's core strengths in auto finance.

You will find some highlights of our financial results on Slide Four. Outside of the headline loss number, there are some positive signs. We are encouraged by the trends we are seeing in our net revenue numbers as interest expenses declined and the capital markets have improved. Our loss provision numbers declined this quarter, but we did book material reserves on certain segments of our portfolio which I'll talk about later. Our total assets declined again this quarter as several of our legacy portfolios have been sold or are in run-off mode. On the capital side, our Tier One ratio was 14.4%, well above the regulatory definition of well capitalized.

On the loan origination front, we used our stronger capital and liquidity position to extend $7.7 billion of additional retail auto loans during the quarter and $15.9 billion of new mortgages. We are pleased with the progress at Ally Bank where we increased our total deposit base by $2.3 billion this quarter. The customer response to the Ally brand promise has been strong. We also continued to clean up our balance sheet as we replace expensive legacy debt with lower cost deposit and other efficient funding -- as we work out our legacy assets, as we put on new higher quality originations, as we drive down our non-interest expense.

Regarding ResCap LLC, we've been taking actions to streamline and refocus that business on the prime origination and servicing operations. As you would imagine, we continue to work through the analysis to reach an appropriate outcome for ResCap. We are focused on dealing thoughtfully with the challenges in that business while preserving the interests of our stakeholders. I should note here that we voluntarily deregistered ResCap which means that we no longer have an SEC filing requirement, and we won't be filing a 10-Q for this quarter. ResCap bondholders will still have access to abbreviated quarterly financials through a secure Web site and can obtain a password by visiting ResCap holdings.com later this week. This decision is purely a result of our efforts to reduce costs and streamline financial reporting and should not be taken as an indicator of any future actions or intentions. Aside from that, we do not have any further update on ResCap today -- other than numbers, and we will inform you just as soon as we do.

On to the quarter. You can see on Slide Five that we were again affected by several sizeable items. We isolated certain business lines as discontinued operations this quarter since these platforms are being sold. These discontinued operations include our US Property and Casualty Insurance business and three of our international auto operations. As for the big items impacting our continuing operations, we expect they will ease over time. Let's walk quickly through these items.

The first important item to note was a sizable tax expense you may recall we booked last quarter from the conversion to a corporation from an LLC. Don't forget, we recouped some of this expense by generating deferred tax assets as we did this quarter. We continue to see an increase in claims for mortgage loan repurchases, primarily from our '06 and '07 vintages with high LTVs. We increased our reserves for this exposure and continue to monitor market trends. For now, we feel we are adequately reserved. We also continue to build loss reserve for our resort finance assets, as this book has continued to show weak performance as it runs off.

This quarter, we again had some credit costs related to certain legacy mortgage assets, but to a much lesser degree than we did last quarter. Also, a considerable expense was taken last quarter due to the sale of certain commercial and international assets. Once again, we had amortization expense for the original issue discount associated with our bond exchange in the fourth quarter. The amount of this OID expense will decrease overtime. And last, due to the strong capital markets, we had a strong reval in our retained auto securitization residuals.

Another item that is worth mentioning is any effect from our investment in Capmark which recently filed for Chapter 11 bankruptcy. We wrote that investment down to zero last year as you may recall, and accordingly we had no impact this quarter. Given the recent news on CIT, I'll also mention that we have no direct exposure to that company. However, we do participate in some of the same lending facilities alongside them and could be called on to share in funding some of these undrawn commitments.

You'll find a breakdown of performance by business segment in Slide Six. Global auto had a pre-tax income from continuing operations of $395 million for the quarter, as origination volume, credit expense, and used car volumes have normalized for us. Insurance posted a pre-tax profit of $81 million for the quarter, and we have continued to prune this business to focus on dealer-related products. Mortgage operations had a loss of $747 million for the quarter, mainly due to the increase in repurchased reserves which I mentioned and additional loss provisions. Finally, our corporate and other segment had a loss of $692 million, stemming from the OID and additional provision for the resort finance portfolio. As I mentioned, during the quarter, we isolated certain non-core insurance and international auto businesses as discontinued and will begin to report them separately from segment information. As we walk through the segments, I'll focus on results from continuing operations for Q3 and prior quarters.

Let's turn now to Slides Seven and Eight, which I'll address together. They cover highlights for the auto finance segment. Auto posted its third consecutive quarter of pre-tax profit from continuing operations this quarter. As we continue to put the capital that it received to work by increasing retail originations to $7.7 billion in the quarter, you can see the steady improvement through the year as we regained market share lost late last year due to capital and funding constraints in the fourth quarter. Ally Bank and our expanded 23 exemption which we got in May contributed to the origination growth. Our ability to fund new auto originations at Ally allows us to be more price competitive in the market.

We saw an increase in originations in the third quarter, particularly in August, related to the Cash for Clunkers program, which some sources estimate increased industry auto sales by as much as 700,000 units. Some portion of this pick-up may have simply been pulled ahead as we have seen industry sales decline steeply from August's 14.1 million SAAR to 9.2 million units in September and now 10.5 in October. By far, the largest portion of our originations stemmed from our relationship with GM. Our penetration rates on sales of new GM vehicles increased to 32% from 28% last quarter. Total originations included around $720 million of Chrysler retail loans this quarter, up from $200 million last quarter. We've also ramped up dealer financing, providing over $3.3 billion in floor plan financing to Chrysler dealers. Our penetration rates have been steadily increasing, and in September, we financed 21% of new Chrysler car sales versus 10% in June and have already signed up the majority of Chrysler dealers for floor plan lines. Our new Ally dealer rewards program should promote additional volumes going forward. This program bundles GMAC's full suite of dealer-centric Financial Services including retail loans and leases, dealer floor plan, auction services, dealer inventory insurance, and extended service contracts. While still new, we expect this program, with its steady, strongly geared incentives, to further increase our share.

On the bottom right of Slide Eight is our US remarketing data. This is what we get at auction when we sell our off-lease vehicles, shown as a percentage of our estimate at the time we wrote the lease. You can see the significant improvement in used vehicle prices in 2009 represented by the green line. Because the sales proceeds have exceeded our estimates, we benefited from strong remarketing gains this quarter. Used vehicle prices have been fueled by the limited supply of used cars and high demand for them given economic conditions. We have seen used vehicle prices begin to moderate after the steep increase. On the bottom left, you can see how our asset base has declined over the past year, due to capital funding constraints late last year, coupled with overall lower industry volumes.

On Slide Nine, you can see the positive results as conditions affecting this business have normalized. Despite a shrinking asset base and lower gross revenue, our net financing revenue has increased over $900 million, due to both lower interest expense and less operating lease depreciation. Our provision for loan losses has been at a more normalized level over the past two quarters as we built up higher allowance balances. As a reminder, the bottom line in the second quarter was driven by the sizable tax expense associated with our conversion to a corporation in Q2. At the bottom of this slide, we've detailed a few notable items which again resulted from improvement in used vehicle prices and the capital markets.

On Slide 10, we provided our credit allowance as a percentage of assets for our coverage ratio. You can see that this number has bounced around some over the past year on the consumer side. The key driver here was the change made to our charge-off policy last quarter to comply with FFIEC requirements, resulting from our status as a bank-held Company. Anticipating higher charge-offs, we increased our reserves last quarter with $134 million of additional writeoffs behind us, we reduced our reserves accordingly. While our reserves continue to reflect week economic trends witnessed by elevated unemployment, we've also seen improved used vehicle prices favorably impact our allowance levels. On the commercial side, our coverage ratio declined slightly versus last quarter but remains elevated relative to prior years given the number of dealers in a stressed or [wind]-down situation.

On Slide 11, you'll see there's been an increase in the delinquency percentage versus prior quarters. While this result is largely driven by increasing unemployment in North America and Europe, there are a few other factors. First, our portfolio is shrinking. Delinquencies are measured against a reducing dominator skewing the percentages upward. Second, we've seen an outsized increase in losses and delinquencies from our legacy Nuvell sub-prime auto book, which ceased originations in March. To give you a sense of Nuvell's impact on our delinquency rate -- at $4.6 billion, the Nuvell portfolio makes up less than 14% of our North American consumer account booked but accounts for 41% of our delinquent balances. This portfolio's wind-down will clearly help our earnings over time. Last, from a seasonal perspective, we typically see higher delinquencies toward the end of the year as the positive impacts of tax refunds subsides. We have broken out our North America book separately on this slide, just to show you how the segment drives the overall view.

Slide 12 shows our loss trends. Similar to the story on delinquencies, a combination of unemployment, a shrinking portfolio, our sub-prime segment, and seasonal factors all are weighing on our results. Importantly though, these results are also skewed by the change in charge-off policy I mentioned, which lead to an acceleration of losses on a number of contracts. While we reported annualized losses of 3.29%, this rate would have been 2.19% had it not been for the change in charge-off policy. Our net loss rate has been helped by improved loss severities which you can see on the top right. Average gross loss severity on our North American service book was about $9,300 per unit, an improvement of $1,100 from the second quarter.

On Slide 13, you can see the results of our insurance segment. Our pre-tax income for each of the three quarters shown has been fairly consistent despite an overall shrinking book of business. One factor that's helped over the past two quarters is the improved performance of our investment book versus a year ago. We made progress in our effort to shed non-core businesses and recently announced an agreement to sell our US Property and Casualty business. The sale of this unit is part of our effort to reshape our insurance business, to focus on dealer-centric products in the US, such as extended service contracts and dealer inventory insurance. The Ally dealer rewards program sharpens this focus by bundling our auto finance products. Our continuing operations in this segment include our US extended service contract and our inventory insurance platform, as well as our international units which are relatively small. We saw a pick-up in extended service contract volumes in the third quarter driven by the increase in sales through the Clunkers program. The success of the program has reduced dealer inventories to a record low 26 days supply in August. But has since bounded back to 49 days in September, but still remains below historical averages and could result in lower inventory insurance volume in the near future for us.

Let's go on to mortgage operations which are highlighted on Slides 14 and 15 which I'll address together. Remember that mortgage ops includes the ResCap LLC legal entity plus our other retail mortgage platforms. All other mortgage operations -- while our mortgage operations experienced a pre-tax loss of $747 million, we did see some encouraging signs in our results this quarter. The net loss in the segment declined significantly from the second quarter, evidence of the legacy issue clean-up. We had positive net revenue this quarter of $585 million driven by improved core business margins and strong net servicing revenue. We've also seen some improvement in our credit loss provision and continue to look hard for rationalization of our portfolio and our platforms and know there is still work to be done. We had another good origination quarter although levels were down from last quarter's mini re-fi boom. This quarter's production of $15.9 billion was 34% higher than year-ago levels. Originations were concentrated in conforming on government loans, which as you know we distribute to the agencies. We continued to pick our spots in the prime jumbo space and originated a limited number of these loans this quarter.

Our balance sheet mortgage assets have grown modestly through 2009, reflecting our improved liquidity position. Also, our primary servicing portfolio has been fairly steady this year. Obviously, the large majority of this book is serviced by us but previously securitized or sold to third-parties. As a servicer, we are participating in the government's home affordable modification program and have initiated over 31,000 modification plans to date.

Let's look at our mortgage income statement on Slide 16. Financing revenue and interest income are lower due to a smaller asset base, but net financing revenue grew to $120 million, assisted by lower interest expense. Net servicing revenue, which is a combination of servicing fee revenue and the net valuation of our servicing asset, improved this quarter from the prior comparable periods due to improved hedging efficiencies. The gain on sale line has improved due to better margins on loans sold and the absence of the large writeoffs on our HFS portfolio which we saw in prior periods. As I mentioned earlier, one of the large numbers driving our mortgage results this quarter was the $515 million expense we set aside for repurchase reserves as shown below in the Notable Items table on this page. This amount shows up as part of non-interest expense in the income statement. We believe we are appropriately reserved given market conditions but will continue to monitor the trends.

The latest quarterly mortgage coverage ratios are shown on Slide 17. We continued to increase our consumer mortgage coverage ratio this quarter due to continued weakness in that segment. Over the past year, we've increased the total dollar amount of our allowance for loan losses despite a 25% drop in the book. Home values are still declining although at a slower pace. Time will tell if this trend is sustainable, and we will continue to closely monitor this portion of our balance sheet. On the commercial side, our coverage ratio declined this quarter as we saw strong cash collections on certain legacy assets. We've made good some progress working down the balances of the legacy portfolios included in this segment. Before I leave the mortgage ops section, you'll find some high level data for the ResCap LLC legal entity on Slide 27.

Our last segment is corporate and other. And with a pre-tax loss of $692 million for the quarter, you can see that on Slide 18. As a quick reminder, this segment includes our commercial finance business, certain equity investments, and other corporate activity. The biggest item here -- our financing loss and provision for loan loss. Net financing loss, as I mentioned, is the OID I mentioned earlier, and the loss provision that was negatively impacted by increased reserves on our resort finance assets. This portfolio has loans with an unpaid principal balance of about $1.4 billion, and now has a net carrying or book value of 55% of this balance.

On Slide 19, I'll spend a minute on deposits and Ally Bank. Ally, as you may recall, is our online bank and the centerpiece of our US funding strategy. In addition to Ally Bank, we are ramping up deposits in Canada through ResMor and are looking at opportunities in Europe to source additional deposits. Customer response to Ally has been good, and the value proposition is resonating with our customers. Our total bank deposits have increased 58% from a year ago to $28.8 billion. Our cost-efficient deposit base has supported our consumer lending efforts, as we fund new originations across the auto and mortgage platforms. The migration to deposit funding has dropped our average borrowing cost to 5.9% this quarter from 6.3% last quarter.

GMAC's liquidity has been bolstered, as I mentioned, by deposits at Ally and ResMor as well as other sources. If you turn to Slide 20, we will detail both our cash balance and our liquidity sources. On the top of the slide, you can see what the change in cash levels were over the quarter. The primary driver of this change in our consolidated cash balance was a rotation out of cash into $4.4 billion in investment securities. These securities are largely AAA, highly liquid, fixed income instruments sitting at Ally. We also had an increase in deposits in our repayment of unsecured debt which affected cash balances. The table on the bottom right lays out the available liquidity at the parent Company. We defined available liquidity here as cash, highly liquid unencumbered securities, committed borrowing capacity under various facilities, and our forward flow commitments. Using that definition, total availability at the end of the quarter was $29.7 billion of which $9.5 billion is available based on current collateral holdings.

One main movement from the second quarter was declining unused capacity under our secured committed facilities. This unutilized capacity is less critical with new originations more efficiently funded elsewhere. We've seen conditions in the ABS market improve dramatically, driven to some extent by the success of the TALF program. And since September have tapped that market with two securitizations sponsored by Ally Bank raising over $1.8 billion of cost-efficient funding. These transactions were well received by the market and distributed to do a broad base of investors. We continue to take advantage of low cost ABS funding as a complement to our deposits. In addition last week, we issued our second piece of TLGP debt, which provided us with an additional $2.9 billion of cost-efficient funding.

On Slide 21, we lay out our capital ratios. Our Tier One ratio increased this quarter to 14.4%. While our Tier One capital fell from $25 billion to $23.8 billion as a result of our net loss in preferred dividend payments, we were actually able to more than offset this with an overall decline in our balance sheet, as well as replacing higher risk-weighted assets with lower ones. I know many of you are interested in hearing more about our final steps in the stress test program which are due out shortly. We are not quite finished here, but I can tell you that the discussions with the Federal Reserve and the US Treasury have been helpful and constructive. I will share more information on this with you just as soon as I can.

Let's conclude on Slide 22. In the third quarter, we continued to make strong progress toward our goal of returning to profitability. Our financial results were once again affected by a clean-up of credit costs and several significant items. While we have made some good progress, we still have our work cut out for us. We are continuing to take a very hard look at our businesses, and there could be additional marks on our mortgage book as we streamline our Company to focus on our core businesses. We did see some bright spots this quarter in those businesses.

Our auto segment was profitable once again, assisted by continuing improvement in used car prices. GM and Chrysler have both exited bankruptcy and are stable. Our new Chrysler partnership is a nice supplement to our origination channels and has diversified our business model. We are also pleased our Ally dealer rewards program was launched this quarter which bundles our auto finance solutions into one coordinated package. While mortgage ops experienced another loss, we are encouraged by the performance of the origination and servicing platforms and the positive net revenue produced this quarter. It appears home values may be starting to level off, which would help us work through issues with our legacy assets. We are also focused on resolving the ResCap situation. Our strong capital and liquidity has allowed us to support our OEMs and consumers as we extended over $25 billion of new auto and mortgage loans this quarter. The Ally bank brand roll-out has been a success, and we will continue to utilize deposits as an important funding component. The clean-up process for both sides of our balance sheet is clearly underway. On the asset side, we'll continue to work out legacy assets and replace them with higher quality assets originated in the core businesses. On the liability side, we've replaced higher cost legacy debt with lower cost deposits and other efficient funding as I mentioned.

We remain keenly focused on our five strategic initiatives which we laid out on previous calls. First, transforming GMAC to comply with bank holding company requirements. Second, strengthening our capital and liquidity by shifting our business to a deposit-funded model. Third, enhancing the management team and infrastructure. Fourth, diversifying revenue within the limits of available funding. And, fifth, and last, improving GMAC's risk profile and returns by focusing on credit quality and reducing our run rate expenses. With that, we can turn to Q&A.

Thanks, Rob. Lacey, we are ready to take calls from investors. Please inform our callers how to queue up to ask a question.

(Operator Instructions) Our first question will come from the line of Eric Selle with JPMorgan. Please proceed.

Hey, good morning. So we should expect announcement surrounding compliance with the stress test by next Monday. Is that what we should all have in our minds?

Eric, the original date is November 9, and what I would tell you is we expect some time close to that date to have an announcement with them. We are working through the details, and I wouldn't worry if it's a day or two beyond that. That's really at the discretion of the Federal Reserve.

Then secondly, do you expect any concessions or strings tied to the additional capital?

Eric, I really can't comment on the composition or texture of how that capital will come in, or what changes will come. They were pretty public when they issued the results of the stress test, and I think you can let those be a guideline or guidewire to what it might look like. Again, it could differ from that. I just can't comment on it at this time.

Why is there such a wide range in the capital expected? Is that -- that's kind of puzzling.

I think you need to explain, Eric, what do you mean -- wide range in the capital?

I think it was $2.9 billion to $5.6 billion expected to come in.

No. Actually they always said it would be $5.6 billion -- was the upper end of what they expected to -- the final slug of the original $11.5 billion. So there's no wide range. Having said that, they will tell us exactly what it will be more or less within that range, and that will be public, I would presume, next week some time. But again, that's at the discretion of the Federal Reserve.

Internally, what is your time line as to resolving ResCap's losses impact on your capital needs? Is that going to be with this stress test? Or is it next spring when their debt starts maturing.

I certainly wouldn't hinge it on their debt maturity schedule. That's never really been a gating factor. The factor on resolving ResCap is we'd like to get it done. I said this last quarter. We have an objective of finishing it out by the end of the year. That's not a promise, but an objective. And we have all the right reasons to expect that. To effect whatever kind of restructuring or finalization around ResCap that we do.

Okay. Looking at ResCap, your provision for losses at the mortgage ops dropped right under $600 million sequentially. And the allowance was pretty much flat. Why did both charge-offs and the provisions drop so much sequentially?

The biggest move in ResCap's drop was really largely due to some recoveries we had on the commercial side. So we had some unexpected recoveries on our commercial lending book that surprised us a little bit as the market has firmed up and credit spreads have tightened. We've actually just had some favorable performance there, and that has changed that book just a bit for us.

And then, just two more quick ones. When do you expect to access the unsecured market without TLGP? Could we see that happen in the fourth quarter? Or is that after we get the stress test?

Let me pass that on to Jeff Brown, our Treasurer, and let him address that.

Thanks, Eric. I think, ideally, we would try to target a transaction some time over the next two quarters. Obviously, we've exhausted all of our capacity under the TLGP program. So the next natural step would be to enter the market some time with a non-guaranteed transaction.

Great. And then finally, just bigger than a breadbasket, what percentage of GM's originations do you expect to grow to? I think you are right around 30% right now, or 28%.

You're right. On the retail side, it is 30%. When we had a strong leasing product, it was considerably more than that. And we have a leasing product now, but when that was a much bigger piece of our volume before we ceased in the fourth quarter. I'm not going to give a forward indication of that, but we would, obviously, like to penetrate more and more of their retail business. The whole thrust of Ally Dealer Rewards is to encourage dealers and customers to buy in more of that percentage. I would also say a big driver of that is how much subvention is at play. That is, how much subsidy on rates that the OEM uses. Both OEMs -- on the Chrysler side and the GM side. I'd like to see it a lot bigger. I wouldn't give a guess at where it should be. You know where it's been historically, and let that be a benchmark.

Driven by liquidity, right? Right. Always driven by liquidity.

Although that -- as we mentioned in the comments, right now between our flow agreements, our deposit funding, and our origination standards, liquidity is not a gating factor at this point.

Okay. Then a final one, and I'll drop off. I really do appreciate your time. But any idea about the proceeds of the sale of the property and casualty business?

We can't comment on that at this time. Obviously, we've signed an agreement with them. That should close in the fourth quarter. And in all likelihood, we'll have more freedom to discuss it at that time.

Alright. Thanks a lot.

You're welcome.

Our next question will come from the line of Doug Karson with Banc of America-Merrill Lynch. Please proceed.

Great. Thank you very much. Good morning. I have a question around Ally Bank. It looks like deposits are up 58%, I think you said, and they are close to $29 billion. Can you give us an idea -- I think there's a breakdown on the slide, I can't really see it that well. How much of those deposits have been directed toward the mortgage business? And how much toward the auto business? And on the long-term basis, how large could that deposit base get? Is there any limitations around that?

A bunch of questions in there, Doug. So first of all, that growth cited -- year-on-year, it's pretty stark. It's very solid growth. Quarter-on-quarter, I think I said it was about $2.8 billion. Recognize a good piece of that -- at least half of that was broker deposits and the other half was retail -- in that growth number. Also understand that the growth in our balance sheet in Ally is monitored and measured and governed effectively with the FDIC. So we are very careful in our growth there. So that will be one factor as we grow it that frames it. The second question is, I wouldn't give you a guess as to how big it would get in future years because of that factor. In other words, it's a collaborative decision. We think our ability to grow deposits is a skillset that we bring to the table. And offering customers a great value proposition. And I guess, I would stop there. YOu had another question in there, Doug. And I'm trying to think what it was beyond framing how big it grows, and how the growth was split. You want an apportionment between auto and mortgage, I guess? Correct. Obviously, a big piece of the growth in the balance sheet is now starting to shift toward -- and you can see this if you pull the call report which is now available for viewing -- is starting to shift toward the auto side, with our 23 -- expanded 23 exemption which we got in May. You will see that that continues to grow at a bigger piece where it used to be less than one third. It will continue to grow. You can see that mix if you go dig at it, and I would expect that to continue to grow. Remember that, largely our mortgage production for the most part, it may spend time as a held-for-sale asset in Ally Bank. But it ends up being sold on an originate-to-distribute model on to the GSEs. That's sort of a way station. We are growing a limited amount of jumbo product, as I said in my comments, but that's a drop in the bucket relative to the overall growth in the bank.

Then, a separate question on the Chrysler business. It looks like in 3Q you originated, I think, around $700 million new Chrysler retail loans. If you could just give us more color on the future of that business. And, is there some sort of more consolidation that you could see between GMAC and the Chrysler business?

I'm happy to talk about that business. I'm not sure what you mean about consolidation. If you mean that we get a bigger share of their business, is that what you're suggesting?

Yes, correct.

We are, just as with General Motors, we have an agreement with them. And so, we would obviously like to generate a sufficiently good product that it would become a bigger and bigger penetration of their existing sales. So that's an aspiration. It's fully -- when we took on that contract in the first half of this year, that was an expectation. It is now growing nicely. Recognize that a $700 million worth of business. In a good quarter, we will do $100 million a day with General Motors. We have a long way to go to build it to a base of origination that we are glad with. But again, we are closing in on 20% plus of their retail component. And a much, much higher percent, say 70% odd of their dealer population. We are getting to a point where we feel good about it. But we've got a lot of growth to do, and we would hope that our numbers would be much bigger on the retail side, as with GM, over the course of time.

Alright. Then finally, I have a question on ResCap, and I'm sure we will be getting a lot of questions regarding the 10-Q filings will no longer be public. It seems that part of the criteria for GMAC achieving bank holding status was diversity in ResCap. It may have played a role in that. As we think about the future of ResCap over the next, let's say, month or so. Is there any way you can share some of the framework of things that you will be thinking about when you look at ResCap's business? And could directionally taking ResCap actually affect the amount of capital that GMAC needs. Would they need $5.6 billion still if ResCap was still in business or not in business? I'm not sure if you can share any of that thought process with us.

Sure. I can't be specific as to the future strategy for how we would structure ResCap going forward, and you would expect that. I said it before, and I have said it in prior quarters. Until our Board and our shareholders get absolutely comfortable with how it will be positioned going forward I can't say it. But having said that, the first point you asked was about diversification. The second one was about capital. On diversification, there's no doubt that in its earlier day before the tougher markets came, ResCap was a diversification play for the broader GMAC enterprise. Unfortunately, diversification is a two-edged sword. And so, it's not turned out to be the blessing on diversification that we thought it was. So I'll leave that to the rating agencies to decide whether it's an asset or a liability. Having said all that, we think properly configured and running, it could once again be a diversification value driver for us. Having said that, that's not a form -- a final statement of where it plays in with us in the future. There are parts of the mortgage business -- the origination or the servicing platform that's conforming and some select high margin asset generation that we might keep that we are excited about. And we like. But they do draw capital. The origination distribution component, obviously, draws very little, but they require cash as well. So all those play in together as to the desirability of that business. Heretofore, as we always say, we evaluate every single month and every single quarter on the value of that ResCap franchise and all of our businesses contribute to shareholders and stakeholders. We are still making that same deliberation, and we feel that for the time being it still continues to deliver value for us in that regard as currently configured. We are working through that. I would only say, yes, it uses capital and liquidity. No, to the detriment of the overall Company at this moment. And the diversification question is really one I can't answer, but I do hope if it were running at where it should be running over time, that it would help in diversification. I would stop there.

Great. Okay. Well, thanks a lot for the color. I appreciate it.

You're welcome.

Our next question will come from the line of Sarah Thompson with Barclays Capital. Please proceed.

Hello. Good morning. A question on the repurchase reserve of $515 million. Is that because you are actually seeing more loans put back? Or did you change the standards by which you set up your reserves? Can you give us a little more color.

Sure. So first, just a clarification, the $515 million is the expense that flows through the P&L, Sarah. So the total reserve is a little under $900 million that we built up for that business. Or for that exposure, I would say. The build in reserve is as we continue to refine our methodology and understand how to reflect it in our financials. And also the payment demands by those holding the loans and the securities that we built that reserve. So it's a fine-tuning of our understanding as well as changes in market trends as those loans continue to get put back to us. As we said in the comments, we believe we are actually adequately reserved. A $515 million additional reserve this quarter is very sizable, and we think that that attempts to cover us as needed.

Was that -- I am just going back to what you are saying on the auto side that had to do with (inaudible). I wasn't sure if it was part of the requirements, or just an internal process?

Okay. Well, two things. One, recognize this has nothing to do with the auto side. Right, this is just on the mortgage side. That's the first piece. And the second piece is that, every single reserve we take as a bank holding now reflects our character as a bank holding Company. The rules are different, but I would just say conservatism is the governing principal. And so I would just tell you -- yes, it has to do with the bank holding company. But, no. My guess is even absent bank holding company status, we would have been taking a sizable reserve as we refine our methodologies, and our risk team gets more and more sophisticated.

Okay. And then on -- I may be mistaken or misheard you on this. But I thought you had a net worth covenant for the GSE's and ResCap. And I know your slide said you still were in compliance with the covenant. Did you amend that?

We did not amend any contracts with the GSEs. There are net worth covenants with them. The most notable covenant, aside from the GSEs, is a $250 million consolidated tangible net worth in the LLC legal entity. That continues to be the largest single governing covenant that we live by, and any other circumstances or covenants that we have with the GSEs, we have agreements and arrangements with them where we are in compliance. So, by and large, we are at the right levels we need to be with the GSEs.

Okay. And then just a last question. On no longer listing the ResCap 10-Qs and 10-Ks. Is that because your number of investors fell below a certain level? Or what is allowing you to do that?

That's a good question, Sarah. The number is 300. So 300 holders is the breakpoint in the SEC rules on that. But let me just reiterate that, the -- so you said how can we do it? But I think more important is, why would we do it? Obviously, as ResCap becomes a smaller and smaller piece of the equation, we are looking at unsecured debt at ResCap of under $4 billion -- under $3.5 billion of external third party debt bondholders. As that number has dropped, the reporting demands are tremendous for such a small piece of debt on an aggregate of $178 billion balance sheet. This is a savings opportunity for us. It's driven by nothing more than that. We've been allowed to do it because we have hit the right triggers of the number of holders. It makes sense to us as reducing our non-interest expense becomes a challenge to get our profitability improved.

I appreciate that. I think you are probably all aware, it just doesn't sends a very good signal to people from our side of the market. I understand that it costs a lot of money, but I'm not sure it's a great signal to send. But I appreciate the color.

And I would only say to that, that we are still providing financials to the population that were getting them before. And you will still get detailed 10Qs and 10-Ks at the parent which have a lot of data on ResCap. That is all I would say to that, Sarah. Anything else?

No, that's it. Thank you very much.

(Operator Instructions) Your next question will come from the line of Brian [Lau] with Columbus Hill. Please proceed.

Hello. It's Kevin Eng. A couple questions. The call report reflects a higher deposit growth at Ally Bank. Obviously, that's because of money lent down to -- from the holding company down to the bank. Can you give us a better understanding as to why you decided to put money down into the bank in that form? And also, I think you put additional equity down in the bank?

A couple of questions in there, Kevin. I'm not sure what the first question was going to. We are growing deposits there, period. That's not in question. The second part of that question was, are we putting equity? We are growing deposits organically within Ally Bank as we talked about at length. That's not necessarily a growth from the parent. But I would say, we are also -- we've got to keep the capital ratios that are -- that we agree to with our regulatory partner. So occasionally you will see equity contributions from parent down to Ally will see equity contributions from parent down to Ally Bank.

And I guess there's two questions. One is, why did you feel there was a need to put additional equity down at the bank? And secondarily, I will clarify my previous question which was that if you reference the call report which came out Friday, it reflects a much higher rate of growth in the deposit base. And that growth in the deposit base, that difference from what you disclose is as we understand it, is coming from GMAC.

You are right. At the end of the period, we put $5 plus billion worth of parent company investments into deposits at Ally Bank. And that's just a movement to drive returns. That's all that is. So that's a parent company investment in Ally, and it goes back and forth over the course of a period. So that's not an organic growth component of it, and that's why it would show up in the call report as opposed to management reporting for seeing in the public docs here.

Does the equity -- you have very high Tier One down at the bank. It's in the low 20%. Obviously, it's extremely high. Was there -- was it an offensive move to put equity down at the bank that allowed you to shift more assets from 23A? Or was it a defensive move? Can you just shed some light on that?

Good question, Kevin. It's neither. So the 22% Tier One number is an outcome, not a driver. The driver of that is the total capital ratio that we keep at the bank which is determined by our regulator.

I'm sorry, the question was the desire to put additional equity capital down.

Right. And so I come back to the fact that the Tier One capital ratio and the total capital ratios are an outcome of our regulators' request to keep a lot of cushion in that business. It's not to drive any particular agenda other than that.

Okay. And can you ask -- on Sarah's question. Not to harp on this. I think you have done a great job on lowering your cost of capital. That's a function of the performance, and certainly the support from the government. Whether it be additional equity capital raised that you've been able to do with them, and-or TLGP. I do think it sends a not great -- it does not send a good signal to the extent you are trying to continue to lower your cost of capital that you are engaging in actions that limit the transparency of your overall business. I understand that existing bondholders will be able to receive financial statements. But it certainly precludes those who are not currently lenders to your business that may want to be lenders to your business in the future. And it makes me think, potentially -- I'm not trying to say that you are being penny-wise, pound-foolish. But it certainly doesn't sends a very warm and fuzzy signal to your creditors. Those that actually supply you the capital to run your business. One would think that lowering your cost of capital is in everyone's best interest.

There were a lot of comments in there, Kevin. What I can tell is, we have roughly a $180 billion balance sheet with $25 billion worth of capital in the balance and obviously, funding -- or in liabilities. And so the piece of liabilities sitting at ResCap is tiny compared to that. I actually believe that the amount of transparency you will get here is very high. And we, obviously, have no objective to lower that in any way. This is a cost-saving measure straight and simple. And so we will make sure that you have enough data on ResCap. But remember, ResCap the legal entity, is not as relevant to us going forward as we don't manage for legal entities as ResCap the mortgage operation segment. Which not only includes the business that was formerly in there, but -- the $14 odd billion worth of mortgage loans that sit in the bank outside the legal entity. It's just not a relevant universe from that perspective. Ally Bank is another story. It's a regulated entity.

My last question is just to confirm. The origination platform and the origination -- and the servicing platform. The servicing, I guess, mostly services the existing portfolio as well as assets in the Ally Bank. I presume they are still sitting at ResCap? Is that correct? Can you confirm that?

Yes, that's correct.

Okay. Thank you so much for your time.

Okay, Kevin.

Ladies and gentlemen, this concludes the question and answer portion of our call today. I would now like to turn the call back over to Mr. Michael Brown for any closing remarks.

Thanks, Lacey. If anyone has any additional questions, please feel free to contact Investor Relations. Thanks to all of you for listening and for your interest in GMAC.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.